Securities Law & Instruments

Headnote

An open-ended trust established to comply with regulatory requirements of the Office of the Superintendent of Financial Institutions is exempt from having to pay corporate finance participation fees, subject to certain conditions.

Applicable Ontario Statutory Provisions

Ontario Securities Commission Rule 13-502 Fees 26 OSCB 890, s. 2.2 and 6.1.

IN THE MATTER OF

ONTARIO SECURITIES COMMISSION

RULE 13-502 FEES

AND

IN THE MATTER OF

MANULIFE FINANCIAL CORPORATION

AND

IN THE MATTER OF

THE MANUFACTURERS LIFE INSURANCE COMPANY

AND

IN THE MATTER OF

MANULIFE FINANCIAL CAPITAL TRUST

 

ORDER

WHEREAS the Director has received an application from Manulife Financial Corporation (MFC), from The Manufacturers Life Insurance Company (MLI), a direct, wholly-owned subsidiary of MFC and from Manulife Financial Capital Trust (the Trust) for an order pursuant to section 6.1 of OSC Rule 13-502 Fees (the Fees Rule), that the requirement to pay a participation fee under section 2.2 of the Fees Rule shall not apply to the Trust, subject to certain terms and conditions.

AND WHEREAS MFC, MLI and the Trust have represented to the Director that:

1. The Trust is an open-end trust established under the laws of the Province of Ontario by The Canada Trust Company as trustee (the Trustee), pursuant to a declaration of trust made as of October 30, 2001, as amended and restated. The Trust has a financial year end of December 31. The Trust is a reporting issuer in Ontario and is not, to its knowledge, in default of any requirement under the securities legislation of Ontario. MLI acts as administrative agent for the Trust pursuant to an Administration and Advisory Agreement dated October 30, 2001, as amended and restated.

2. The outstanding securities of the Trust consist of (i) Special Trust Securities (the Special Trust Securities), which are voting securities of the Trust, and (ii) Manulife Financial Capital Securities -- Series A and Manulife Financial Capital Securities -- Series B (the MaCS). The Special Trust Securities and the MaCS are collectively referred to herein as the Trust Securities. All outstanding Special Trust Securities are held by MLI. The Trust distributed 60,000 MaCS -- Series A and 940,000 MaCS -- Series B in a public offering pursuant to a prospectus dated December 5, 2001 (the Offering). The MaCS -- Series A are listed on the Toronto Stock Exchange, the MaCS -- Series B are not listed on any exchange. They may be redeemed at par beginning on June 30, 2012.

3. MLI is a direct wholly owned subsidiary of MFC. The Trust is an indirect, wholly owned subsidiary of MFC by virtue of MLI's ownership of all the outstanding voting securities of the Trust.

4. Pursuant to a Mutual Reliance Review System for Exemptive Relief Decision Document dated May 19, 2000 (the 2000 MRRS Decision) granted to MLI by the OSC and the other Decision Makers set out therein, such decision makers determined that MLI would not be subject to the disclosure requirements contained in the securities legislation of the Province of Ontario and the securities legislation of the other applicable jurisdictions so long as MFC complied with the requirements and so long as MFC had no assets, other than of nominal value, other than MFC's interest in MLI.

5. The Trust is a special purpose issuer, established solely for the purpose of effecting the Offering in order to provide MLI with a cost effective means of raising capital for Canadian financial institution regulatory purposes. The Trust acquires and holds sufficient assets to generate income for distribution to holders of the Trust Securities. The Trust does not and will not carry on any operating activity other than in connection with the Offering. The assets and liabilities of the Trust are reported on the consolidated balance sheet of MFC.

6. Pursuant to a Mutual Reliance Review System for Exemptive Relief Decision Document dated March 21, 2002 (the 2002 MRRS Decision) granted to the Trust by the OSC and the other Decision Makers set out therein, such Decision Makers determined that the requirement contained in the securities legislation of the Province of Ontario and the securities legislation of the other applicable jurisdictions to:

(a) file interim and audited Annual Financial Statements (the Financial Statements) with the Decision Makers and deliver such statements to holders of Trust Securities;

(b) make an Annual Filing, where applicable, with the Decision Makers in lieu of filing an information circular; and

(c) file an Annual Report and an information circular with the Decision Maker in Quebec and deliver such report or information circular to holders of Trust Securities resident in Quebec;

shall not apply to the Trust for so long as the following conditions are satisfied:

(i) MFC remains a reporting issuer under the Legislation;

(ii) MLI remains a reporting issuer under the Legislation;

(iii) MFC files with the Decision Makers, in electronic format under the Trust's SEDAR profile, the documents listed in clauses (a) to (c) above, at the same time as they are required under the Legislation to be filed by MFC;

(iv) the Trust pays all filing fees that would otherwise be payable by the Trust in connection with the filing of the documents referred to in clauses (a) to (c) above of this Decision;

(v) MFC sends its Financial Statements and Annual Filing, where applicable, to holders of Trust Securities and its Annual Report to holders of Trust Securities resident in the Province of Quebec at the same time and in the same manner as if the holders of Trust Securities were holders of MFC Common Shares;

(vi) all outstanding securities of the Trust are either MaCS or Special Trust Securities;

(vii) the rights and obligations (other than the economic terms thereof) of holders of additional series of MaCS are the same in all material respects as the rights and obligations of the holders of MaCS - Series A and MaCS - Series B at the date of the 2002 MRRS Decision; and

(viii) all of the outstanding Special Trust Securities are beneficially owned by MLI or any of its affiliates and all of the issued and outstanding voting shares of MLI or of its affiliate which owns the Special Trust Securities are beneficially owned by MFC;

and provided that the 2002 MRRS Decision shall expire 30 days after:

(A) the date that MLI can no longer rely on the 2000 MRRS Decision; or

(B) the date a material adverse change occurs in the affairs of the Trust.

and that the AIF and MD&A Requirements (as defined in the 2002 MRRS Decision) shall not apply to the Trust for so long as:

(i) the conditions set out in clauses (i), (ii), (vi), (vii) and (viii) of the 2002 MRRS Decision are complied with;

(ii) MFC files the AIF and the annual and interim MD&A with the Decision Makers, in electronic format under the Trust's SEDAR profile at the same time as they are required under the Legislation to be filed by MFC;

(iii) the Trust pays all filing fees that would otherwise be payable by the Trust in connection with the filing of the documents referred to in clauses (a) to (c) of the 2002 MRRS Decision;

(iv) MFC sends its annual and interim MD&A to holders of Trust Securities at the same time and in the same manner as if the holders of Trust Securities were holders of MFC Common Shares;

and provided that the 2002 MRRS Decision shall expire 30 days after:

(A) the date that MLI can no longer rely on the 2000 MRRS Decision; or

(B) the date a material adverse change occurs in the affairs of the Trust.

7. The Trust was established by MLI to comply with regulatory requirements of the Office of the Superintendent of Financial Institutions (OSFI) respecting the issuance of innovative Tier 1 capital. Innovative instruments, such as the MaCS, must satisfy the detailed requirements of OSFI Interim Appendix to Guideline A-2 Principles Governing Inclusion of Innovative Instruments in Tier 1 Capital (the OSFI Guideline), to be included in Tier 1 capital. The OSFI Guideline requires that innovative instruments be issued by a separate special purpose issuer.

8. Issuing innovative instruments, such as the MaCS, is a cost effective means of raising Tier 1 capital for MLI. However, the MaCS could not have been issued directly under the OSFI Guideline. If MLI could have issued the MaCS directly, this capital would have been included in the calculation of the participation fee payable by MFC under section 2.2(2) of the Fees Rule. The current market capitalization of the MaCS is approximately $1.1 billion and MFC's current market capitalization is approximately $22.2 billion. The combined market capitalization would be well below the $25 billion threshold for the next participation fee level in the participation fee calculation. As a result, a direct issuance by MLI of the MaCS would not have increased the aggregate participation fee payable by MFC.

9. No continuous disclosure documents concerning only the Trust will be filed with the OSC, and the Trust will not issue any further securities other than Special Trust Securities issued to MLI or to a direct or indirect wholly-owned subsidiary of MFC.

10. The Trust is a 'Class 1 reporting issuer' under the Fees Rule. Its capitalization as at December 31, 2002 was approximately $1.021 billion. Accordingly, under the Fees Rule the Trust would be required to pay a participation fee of $37,500 for 2003 (9/12ths of $50,000) and a participation fee of $50,000 for each subsequent financial year. Assuming the MaCS were redeemed on June 30, 2012, the Trust would be required to pay aggregate participation fees of $450,000 over its remaining operational lifetime.

THE ORDER of the Director under the Fees Rule is that the requirement to pay a participation fee under section 2.2 of the Fees Rule shall not apply to the Trust, for so long as:

(i) MFC, MLI and the Trust continue to satisfy all of the conditions contained in the 2002 MRRS Decision, and MFC and MLI continue to satisfy all the conditions contained in the 2000 MRRS decision;

(ii) the Trust does not issue any further securities, other than Special Trust Securities issued to MLI or to a direct or indirect wholly-owned subsidiary of MFC; and

(iii) the capitalization of the Trust represented by the MaCS is included in the participation fee calculation applicable to MFC.

March 12, 2004.

"Charlie MacCready"